Diabetes results from inadequate β-cell number and/or function to control serum glucose concentrations so that replacement of lost β-cells could become a viable therapy for diabetes. In addition to embryonic stem cell sources for new β-cells, evidence for transdifferentiation/reprogramming of non-β-cells to functional β-cells is accumulating. In addition, de-differentiation of β-cells observed in diabetes and their subsequent conversion to α-cells raises the possibility that adult islet cell fate is malleable and controlled by local hormonal and/or environmental cues. We previously demonstrated that inactivation of the activin antagonist, follistatin-like 3 (FSTL3) resulted in β-cell expansion and improved glucose homeostasis in the absence of β-cell proliferation. We recently reported that activin directly suppressed expression of critical α-cell genes while increasing expression of β-cell genes, supporting the hypothesis that activin is one of the local hormones controlling islet cell fate and that increased activin signaling accelerates α- to β-cell transdifferentiation. We tested this hypothesis using Gluc-Cre/yellow fluorescent protein (YFP) α-cell lineage tracing technology combined with FSTL3 knockout (KO) mice to label α-cells with YFP. Flow cytometry was used to quantify unlabeled and labeled α- and β-cells. We found that Ins+/YFP+ cells were significantly increased in FSTL3 KO mice compared with wild type littermates. Labeled Ins+/YFP+ cells increased significantly with age in FSTL3 KO mice but not wild type littermates. Sorting results were substantiated by counting fluorescently labeled cells in pancreatic sections. Activin treatment of isolated islets significantly increased the number of YFP+/Ins+ cells. These results suggest that α- to β-cell transdifferentiation is influenced by activin signaling and may contribute substantially to β-cell mass.